Black Hills utility proposes rate hike; increase would affect 180,000 customers in north Arkansas

About 180,000 customers in 20 counties in north Arkansas would see their monthly natural gas bills rise next winter under a proposal submitted by Black Hills Energy Corp., which is asking state regulators to raise residential rates by 10%.

The utility's proposal, filed late Friday afternoon, would raise rates for business, industrial and residential customers in the northern tier of Arkansas, stretching from Benton County to Clay County. Residential customers would see an average monthly increase of $8.65 while larger business customer increases would vary by usage.

"This rate review request will enable us to continue to meet the growing needs of our system and continue our commitment of safely and reliably serving our customers with affordable natural gas as an energy choice," Chad Kinsley, vice president of operations for Black Hills Energy Arkansas, said in a news release issued Monday.

The $21.6 million annual increase would go into effect in the fourth quarter of 2022, company spokesman Michael Howe said. Approval from the Arkansas Public Service Commission is required. The Arkansas commission has until next October to rule on the request.

Black Hills contends the rate increases will recover capital expenditures and operating expenses the company has incurred since its last rate increase in October 2018. Growth in Northwest Arkansas -- the fastest-growing region in the state -- has required investments to upgrade and expand its natural gas infrastructure, the company said in its Public Service Commission filings.

The utility serves more than 100 Arkansas communities, including Blytheville, Fayetteville, Harrison, Lowell, Rogers and Ozark.

Rate increases would apply to customers in Baxter, Benton, Boone, Carroll, Clay, Craighead, Crawford, Crittenden, Franklin, Greene, Izard, Johnson, Lawrence, Logan, Madison, Marion, Mississippi, Sebastian, Stone and Washington counties.

Black Hills has added 11,000 new customers, primarily in Northwest Arkansas, since its last rate review, Kinsley said in testimony filed with the commission. The utility has invested capital to support safety improvements, pipe replacements and road relocation projects related to the growing population, the filing said, with Kinsley's testimony noting the company's "investments in its systems have substantially exceeded amounts recoverable" through existing regulations.

The company "is experiencing a revenue deficiency of approximately $21.6 million," Kinsley said in testimony.

Natural gas customers already are facing severe rate increases this winter, according to a federal study. The U.S. Energy Information Administration has reported that U.S. households will spend an average of $746 to heat their homes, up 30% or $172 from last year.

Last month, CenterPoint Energy asked the Arkansas commission to approve a 42% rate increase for residential customers to cover rising natural gas prices. The company is the state's largest natural gas provider with about 400,000 customers.

In its filings, Black Hills says there are three primary factors driving the rate request: investments need to provide safe and reliable service; increases in operating expenses fueled by state and federal requirements; and expenses to improve the integrity of the transmission and storage systems.

The lingering pandemic has "had far-reaching implications for many facets of the company's business operations during 2020, with some of those impacts continuing into 2021," Robert Daniel, manager of regulatory issues for Black Hills in Arkansas, said in filings submitted to the commission.

As a result, the company experienced high bad debt expense associated with a ban on disconnects and hardships suffered by customers and had lower service fee revenues during the pandemic as well as higher costs related to purchases of personal protective equipment and supplies.

Black Hills has made "substantial new investments" in its Arkansas pipeline "while operating efficiently and keeping costs as low as possible," the rate filing says. At the same time, operating costs continue to rise and the utility "needs increased rates and revised tariffs in order for it to be provided a fair return on investment to its stockholder," the filing said.

The company's Arkansas operations are based in Fayetteville and Black Hills has about 259 employees in the state. Company headquarters are in Rapid City, S.D.

Along with Arkansas the utility provided natural gas to 1.3 million customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. Black Hills has 2,850 employees across its coverage area.

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